Executive Summary

e-RFx is one of the most common acronyms in the strategic sourcing and procurement industries. It does not stand for anything specifically; the RF represents “Request For” and the x is just a placeholder for I, P, and / or Q. RFx is a term that captures all references to requests for Information (RFI), requests for Proposal (RFP) and /or requests for Quote (RFQ), or in rare cases, requests for Bid. The RFx process is probably the most difficult e-Sourcing process to define as it can range from a simple one-time RFQ to a complex multi-stage RFI / RFP / RFQ process, depending on the needs of the project. The complexity of the RFx process is then determined by the completeness of the requirements, the number of suppliers that have been qualified, expected competition in the supplier base, inherent risk in the sourcing effort, and projected savings or cost avoidance opportunities.

Each eRFx has a unique and primary goal. Typically, the primary goal of an eRFI/survey is to maximize potential decision points while keeping supplier evaluation costs low. The end goal of an eRFP is to determine a set of potential suppliers that are the most capable of meeting the organization’s needs and to identify those suppliers that can actually submit bids. And the final goal of an eRFQ/auction is to make the final award decision.

The numerous benefits of eRFx include:

Efficiency through sourcing cycle time reductions

Accuracy and consistency through standardization collaboration

Knowledge transfer

To maximize success with e-RFxs, a technology platform should have the following requirements: a centralized repository, templates, common-sense formatting, workflow capability, data exportation and, finally, security and access control.

The e-RFx Defined

e-RFx is one of the most common acronyms in the strategic sourcing and procurement industries. It does not stand for anything specifically; the RF represents “Request For” and the x is just a placeholder for I, P, and / or Q. RFx is a term that captures all references to requests for Information (RFI), requests for Proposal (RFP) and /or requests for Quote (RFQ), or in rare cases, requests for Bid. What is interesting to note is that these sourcing strategies are usually merged into one process since (from a technical viewpoint) they look and work similarly. However, they have distinct uses in the strategic sourcing cycle.

As hinted at in another wiki topic, “Best Practices in Strategic Sourcing: A Total Value Management Perspective”, each of these applications has a specific role to play in the sourcing cycle and should be used when appropriate. This wiki strives to define and distinguish the RFI from the RFP from the RFQ, clearly indicate when each should be used and highlight their place in the e-Sourcing process.

The RFx Process

The RFx process is probably the most difficult e-Sourcing process to define as it can range from a simple one-time RFQ to a complex multi-stage RFI / RFP / RFQ process, depending on the needs of the project. On average, the full process will generally consist of a three-stage RFI that collects all of the stakeholder requirements, gauges potential supplier interest, and pre-qualifies interested suppliers before proposals and final bids are collected, an open RFP phase where suppliers can offer their products, services, and suggestions, and a final RFQ phase where suppliers present their bids. The RFQ step can include either an auction or sealed bid that systematically collects supplier bids for the identified goods and / or services.

Process exceptions

It is up to the Sourcing Professional to determine which steps are required to produce the desired sourcing output. Some guidelines for excluding certain steps include the following:

For clearly known stakeholder requirements or standardized, frequently sourced commodities, the initial, internal phase of the RFI can easily be excluded.

If supplier interest is well known, the second phase of the RFI can also be excluded.

If suppliers have already been qualified from previous projects, then it might be possible to exclude the third phase of the RFI.

If a commodity or simple custom-made component does not require supplier input or collaboration then the RFI/P phase can be excluded.

At the other extreme, multiple phases of the RFx process will likely need to be executed when:

sourcing components for a new item or service where there are no clear requirements

where new suppliers need to be included

where a supplier’s capabilities to produce one or more of the new components are (relatively) unknown

where confirmation is needed from the alternative teams (such as design/engineering, marketing, quality, etc) on the appropriateness of the decisions

eRFx Project Strategy Selection

A spend analysis initiative identifies commodities, components and categories that are potential opportunities for cost savings / avoidance. Sourcing teams can use these two key factors to help prioritize projects and select the most appropriate sourcing strategy.

1- Contract status- review spend status based on whether:

Currently under contract ( unavailable for bid)- Should a commodity be under contract, sourcing can still positively impact the organization through various initiatives and tactics.

Spend compliance tracking:

User adoption and education campaign

Supplier performance improvement

Contract termination

Supplier collaboration:

Contract renegotiation

Joint initiatives

No current contract in place (available for bidding)- If available for bid, review the commodity characteristics to determine the best eRFx strategy.

2- Commodity Characteristics- score available spend based on:

Commerical attractiveness (to potential suppliers) – Is there market capacity? Is the buying company a marquee customer?

Range: attractive for suppliers (+) to unattractive for suppliers (-)

Definable requirements - Can the requirements be precisely described?

Range: well-defined and available specifications (+) to unknown (-)

Competitive supply base – How many potential suppliers are there?

Range: numerous, high quality suppliers (+) to one supplier (-)

Savings opportunities – Has it been bid before? Is there compressible margin?

Range: compressible pricing (+) to rising market (-)

Inherent risk – If something goes wrong, how bad will the problem be?

Range: low (+) to high (-)
Only for the inherent risk metric, a low score is considered positive as it means there is minimal impact to the company if something goes wrong.

An experienced sourcing professional can quickly evaluate the commodity and score each of the five characteristics as either positive (+), neutral (l) or negative (-).

The collection of scores will indicate whether the project should use a reverse auction, sealed bid, eRFI/survey or an eRFP. An online sealed bid is managed just like a manual sealed bid. Suppliers invited to participate in an online sealed bid submit “best and final” offers through the eRFx technology.

An eRFQ with a reverse auction is not always the tactic of choice. Figure 2 lists possible scores relevant to the characteristics and which bidding tactic or negotiation strategy might work best – depending on how the scores align themselves. Commodities with mostly positive scores are good fits for auctions while those with mostly negative scores are better off using an eRFP. An experiences sourcing professional can easily determine those that fall in between.

For example, a sourcing professional might score a potential pallet project in the following manner.

Potential project: Pallets

Commercially attractive

It is a high dollar amount to suppliers

Score = +

Definable requirements

Current specifications are available

Score = +

Competitive supply base

There are over 20 quality suppliers

Score = +

Savings opportunities

Pallets have never been competitively sourced

Score = +

Inherent risk

There is very little risk to the manufacturer or customer

Score = +

Based on the collected set of scores, this commodity would be a good fit for an online reverse auction.

The RFI

The sourcing process can begin and end with the Request for Information. It is a very safe strategy with the lowest impact on all parties.

It can also be used to manage sourcing risk by looking at the category characteristics (commercially attractive, definable requirements, competitive supplier base, savings opportunities, inherent risk) “pushing” Medium (or unknown) risk characteristics to High or Low ratings.

The RFI is the first e-RFX application that can be used in the information gathering and strategy selection phase of the strategic e-Sourcing process. Furthermore, as discussed above, one might create and distribute multiple RFIs internally and externally during requirements gathering, supplier identification, and supplier qualification. It is important to realize that the RFI process is not required to involve suppliers in the beginning. A successful standardization of RFx processes include both internal and external information gathering.

If requirements are not fully known and verified, the process should start with the distribution of one or more RFIs to stakeholders to determine product, performance, and service needs as well as to get feedback on potential suppliers.

After identifying the initial set of suppliers, the sourcing team should distribute an externally facing RFI that distributes basic information about the sourcing project and collects basic information about the supplier, its products and/or services, its level of participation interest. An RFI can generally be defined as a small, succinct high-level exploratory document that is designed to address a specific need and asks simple, direct questions to elucidate that point. It is generally used to determine if a supplier:

offers a given product or service

is interested in supplying appropriate products or services to the buyer

uses or supports a given technology

is interested in a strategic relationship

has the ability or capacity to successfully perform to the specification

In addition to asking for (or confirmation on) basic data such as company size, market value, annual revenues, employees, locations, history, and core capabilities, and acceptance of any non-disclosure or confidentiality terms required by the buyer, it should include the same information on the buying organization and clearly outline the goals and objectives of the RFx process. For example, the buyer is looking to enter into new contracts for a commodity group and wants to determine if the supplier is interested in supplying one or more of the products and if it is potentially interested in forming a development partnership.

Then, after the responses have been received and evaluated by appropriate team members, only pre-qualified, interested suppliers should move to the next phase.

The next RFI stage includes a more detailed RFI to help determine the suppliers’ engineering and service capabilities as well as qualifications relevant to identified needs. This allows for the construction of a set of pre-qualified suppliers to whom business could be awarded.

If the buyer is seeking a (new) supplier to provide customized direct/indirect goods, then the RFI should include outline specifications for the customized package and a location for a supplier to ask questions. It should also ask for customer references from suppliers the buyer has not previously sourced from if those suppliers are interested in selling to the buyer.

An RFI is generally used for market exploration to find new potential suppliers. It may also be used to help a buyer determine, based upon the responses, which suppliers can conduct business with the company. For example, if the buyer is moving to a new technology and one or more incumbent suppliers are unable to support this technology, then the buyer need not consider them for future awards. The end goal is to decide which suppliers will be invited to submit a detailed RFP or respond to an RFQ.

The RFP

The Request for Proposal is the second e-RFx application that can be used in the strategic e-Sourcing process.

Once potential suppliers have been identified and pre-qualified through an RFI, one needs to identify those suppliers capable of meeting the organization’s needs with respect to capacity, quality and time-line requirements. The RFP is sent to all of suppliers who expressed interest in providing the products or services based on the organization’s basic technical and strategic requirements.

RFPs are particularly effective when there exist multiple solutions to the same problem. Each solution is unique and cannot be easily compared on an apples to apples basis. They must be evaluated on their ability to solve the problem effectively and economically. For example, if a company is looking to heat and cool a new facility - solar, gas or electric HVAC systems solve the problem in different ways. Additionally, they each have significantly different environmental impacts that need to be carefully analyzed if your organization has begun a “green” supply chain initiative. An RFP helps the Sourcing Team collect and evaluate each solution based on its own merits.

Whereas the RFI is generally a succinct high-level exploratory document to gauge the market and high level supplier capabilities, the RFP is used to precisely determine a supplier’s capabilities with respect to:

the production of the customized products or services the organization requires

new or emerging technologies that the organization is currently using or plans to use in the (near) future

innovation, process improvement, and creative problem solving

In addition, whereas the RFI only included outline specifications for a customized package, the RFP includes detailed specifications, supply requirements, quality and safety specifications, and expected delivery times to allow the suppliers to gauge their respective capabilities with certainty and accuracy. (Of course, they may only be allowed to view detailed specifications after accepting a mutual Non-Disclosure and Confidentiality Agreement.)

The RFP should contain both narrowly defined and open ended questions to allow suppliers to propose innovative ways of improving processes, decreasing manufacturing, integration, and / or delivery costs, and solving shared problems. Narrowly defined questions (with response types such as yes/no, comply/do not comply, etc.) help focus suppliers’ responses to what actually matters. With too many open ended questions, Sourcing Teams run the risk of introducing too much complexity into the decision making process and making it more difficult to compare solutions. At the same time, too many narrowly defined questions risks limiting supplier creativity.

The RFP should also request that the vendor provide an overview of customized products and / or services that it has offered in the past, its history of on-time delivery (at the required level of quality), and any innovations it developed to improve the production of those products or services. Finally, it should include a section where the supplier can ask questions of the buyer.

The end goal is to determine which suppliers are the most capable of meeting the organizational needs and to identify those suppliers that can actually submit bids.

The RFQ

The Request for Quote is the third e-RFx application that should be used in the information gathering and strategy selection phase of the strategic e-Sourcing process. It is usually associated with a sealed bid or auction to systematically collect quotes. The RFQ specifically defines the sourcing process and bidding format. It includes detailed specifications of the goods or services being solicited (updated as necessary), complete information on the bidding and selection process and requests for any additional information required and not collected in the RFP / RFI. The RFQ defines lot sizes, delivery schedules and other relevant contract terms.

Reverse auctions vs. sealed bids

The result of an RFQ is to collect supplier bids on a clearly defined set of goods and/or services. Both the sealed bid and auction formats accomplish this task effectively. The results enable Sourcing Professionals to compare qualified suppliers on an equal basis.

However, not all sourcing projects should be auctions. There is an appropriate time to use an auction format. The following spend category characteristics are favorable to auctions.

Commercially attractive to the target suppliers. The volume and dollar value is relevant to the participating suppliers. For example, a $500,000 bid may be attractive to smaller, regional suppliers such as temporary labor, yet unattractive to another set of suppliers like large, international printed circuit board manufacturers.

Specific, clearly definable requirements for both the goods and services.

Multiple, qualified and interested suppliers. This means that there are at least three potential suppliers that are on equal footing.

High savings or cost avoidance opportunities

Low relative risk to the organization. This could refer to many risk factors such as product outages, product quality and e-Sourcing experience of the Sourcing Team.

Sealed bids can be equally effective in collecting quote information. Many public sector sourcing projects prefer this method. Though there is less direct, head-to-head competition, the results still deliver cost savings or avoidance. The following spend category characteristics are favorable for sealed bids.

Commercially attractive to suppliers.

Specific, clearly definable requirements for both the goods and services.

Fewer suppliers, between two to five.

Savings opportunities

Limited or combative supply base and/or product availability

Some inherent risk. For example, some commodity markets with few suppliers are sensitive about overtly displaying pricing in an auction.

The final goal of an RFQ is to make the final award decision.

Where to Start

So how does a Sourcing Professional know which RFx format to choose? It helps to simplify and focus on a few key elements. By evaluating the spend category based on five simple factors, the Sourcing Professional can decide which format works best.

The five factors are guidelines for helping determine where to start. An experienced Sourcing Professional makes the final determination.

e-RFx Benefits

Today’s e-RFx tools provide the sourcing professional with a plethora of benefits. The major benefits of an e-RFx tool include:

Efficiency through Sourcing Cycle Time Reductions

An information gathering and analysis cycle can typically take many months; it now can be completed in a couple of weeks. The additional expense and time associated with distributing and collecting documents via USPS or overnight shippers disappears. Web enabled e-RFx tools allow Sourcing Teams to share documents within an organization and between global suppliers. Another time saving feature of e-RFx tools is the enablement of Sourcing Professionals to compare supplier responses side-by-side and allow multiple stakeholders to simultaneously evaluate the responses. This supports faster decisions.

Accuracy and Consistency through Standardization

Together, workflow management, a centralized repository with document library management, and reusable templates provide tools for maximizing sourcing process effectiveness. Process standardization that leverages those tools is the foundation for cycle time reduction, process improvement, and global compliance. e-RFx technology insures consistency within the organization from person-to-person, from project-to-project, business-unit-to-business unit and helps foster an environment of trust for suppliers.

Collaboration

e-RFx technology can be one of the most significant enablers of collaboration between team members, stakeholders, and suppliers as all parties involved can come together through the use of a single tool to share information, ask questions, and receive responses. e-RFx technology is a central enabler for knowledge transfer between people, projects, and collaborating organizations.

Surveys

e-RFx software can be used both internally and externally. There is nothing prohibiting teams from using it to collect internal demand forecasts or as an internal collaboration tool. One can use them to conduct internal surveys on current supplier performance as a basis for internal supplier scorecarding. An e-RFx can even be used to collect feedback on the procurement group’s performance from internal stakeholders or to track procurement assets and capabilities. A good e-RFx tool is flexible. Identify information inefficiencies and be creative.

Knowledge Transfer

e-RFx technology also supports the center-led procurement model where procurement experts in a center of excellence develop and maintain the organization’s overall supply chain and commodity sourcing strategies in support of the individual purchasing groups in each distinct (geographically dispersed) purchasing organization. And since sourcing information does not physically reside in storage, all historic sourcing project information is available to the Sourcing Team, even when a team member leaves the organization.

More Spend Under Management

We can start with the recent e-Procurement Benchmark Report from The Aberdeen Group to demonstrate our point. According to the report, companies that employ e-Procurement increase their spend under management by an average of 36%. Considering, a good e-RFX tool, which is the foundation for e-Procurement as well as e-Sourcing, the importance cannot be under emphasized. Furthermore, as noted in this Supply Chain Management Review article, best-in-class companies have 33% more suppliers electronically enabled, and a good e-RFX tool is the starting point.

e-RFx Technical Requirements

Centralized Repository

One of the most significant benefits of an eRFx solution is the centralized data repository. A centralized repository allows the organization’s supplier and sourcing-related information to be stored in one common location that can be accessed by all relevant stakeholders. This not only helps to streamline the sourcing process, but also assists in the determination of whether all required information has been collected and whether the sourcing team has followed all appropriate processes to meet corporate compliance requirements.

Templates

World-class eRFx tools allow for the creation, editing and storage of project templates. Reusable templates allow for continual process improvements and cycle time reductions for sourcing projects. Templates can be customized and / or localized across the global organization. When the use of templates is combined with a centralized repository, category managers are free to be more strategic and focus on global category sourcing strategies. Additionally, less experienced sourcing professionals can be more effective through use of templates.

Formatting

It is very important that a chosen eRFx platform is highly customizable and allows users to make format changes easily. Functionality such as text changes by font, color, style, size, hyperlinks, bullets, embedded images, fields and spell checking should exist in rich format without the added burden of scripting language skills.

Response and Evaluator Scoring

Other critical functionality for effective design and usage of eRFx include the ability to use custom weight and score criteria for responses and evaluators. Administrators should be able to weigh sections, questions and internal stakeholders and use an appropriate point system for a particular project and supplier review.

Workflow Capability

Modern eRFx tools usually come with integrated task tracking and workflow management tools. At any given point in time, any member of the sourcing team can determine precisely the current stage of the selected eRFx process and which suppliers have responded. An eRFx can be created for later, or even partially created, saved, and finished at a later time. Additionally, an eRFx tool should support integrated email management which streamlines the communication process with suppliers after the approved document is ready to be published. Once published, administrators should have the capability of alerts and triggers that notify both the buyers and respondents of changes to the eRFx and any communication from suppliers.

Data Import / Exportation

Existing supplier data is often contained in a SRM (Supplier Relationship Management) system. Commodity data is usually found in an ERP (Enterprise Resource Planning) system. Thus, it is important that the eRFx tool make it easy to import or export data and reports from other applications. A simple action such as, exporting the resulting final scores from an evaluation team can be used as supporting documentation for a PO entry.

Security, Access Control and Collaboration

An eRFx engine should support secure log in, encryption for passwords and other sensitive data. It should also provide access control across groups and individuals to ensure that the various stakeholders can only access data they are allowed to see. Additionally, it should ensure that master data and master templates are only changed by authorized personnel.
More importantly, the eRFx technology should support collaboration between users – whether they are internal stakeholders, suppliers or the Sourcing team.

e-RFx Best Practices

Though a basic e-RFx process sounds straightforward, one can still identify some best practices that, when followed, will yield optimal results.

Understand the Requirements

For each item being sourced, understanding of technical specifications, service requirements, baselines, and demand forecasts is critical. Solicit input and feedback from all key stakeholders. This helps ensure that the RFx is as complete as possible and assists with the determination of whether an RFI or RFP is needed. If the commodity being sourced is a basic commodity with a standardized format across the supplier pool, one may not need an RFP and will generally only need an RFI for new suppliers to determine whether or not they are interested in bidding.

Quantify the costs of switching suppliers and potential savings opportunities to determine the appropriate complexity of the sourcing cycle. If the product is a standardized commodity and the opportunities for savings low, then not only is a multi-stage RFx cycle unnecessary, but decision optimization is not likely to yield significant additional savings. All that may be needed is an RFQ notifying the candidate supplier pool that they are invited to a standard reverse auction where the lowest bidding supplier is awarded the business.

Include the Right Information

In addition to detailing the products and/or services the organization is looking to source, be sure to provide the same background history on the buying organization that is being asked of potential suppliers; corporate and sourcing philosophies; the reason why the exercise is being undertaken; and the award methodology that will be used. This will let potential suppliers know that the buying organization is serious and honest about the process and initiate goodwill and trust up front.

Whenever possible, use common definitions in the business, functional, and technical requirements to increase understandability. Keep the explanations as simple as possible. Remember, the first language and culture of the audience may not be the same as the speaker in today’s global sourcing environment. Separate out commodities from highly customized parts and services.

Finally, be clear on the response format and required documentation. Where appropriate, allow suppliers opportunities to provide creative and innovative feedback.

Communicate with Suppliers

After the RFx has been sent to suppliers, follow up with a phone call to make sure they received it, can access it and can understand what they need to do to participate. Ask them if they understood any specialized or customized requests and if there is any other information they require. If they are having problems with the interface, invite them to a web delivered training session or offer one-on-one support.

Create a Balanced Scorecard

Make sure the RFx is structured to evaluate a supplier’s total value proposition. Define key evaluation criteria, expected Service Level Agreements (SLAs) and a standardized weighting for each criteria. Evaluate each supplier’s response against the standardized weighting and create a balanced scored for each supplier. Eliminate suppliers after an initial round if their overall score is low. If a supplier is well-balanced, but weak in the key areas the organization values most, follow up with the supplier to determine if they would be willing to work jointly to improve their service levels in those areas.

Manage the Process

Be sure to control the process from start to finish. Follow up with internal stakeholders after requesting information and providing them with initial drafts. If the RFx is being created in a collaborative process, make sure each party understands what they need to do, when they need to have it done by, and how they get it done. Follow up with suppliers in a timely manner. Start the analysis phase as soon as the reply deadline has passed and make an award decision quickly. A managed process flows smoothly and generates returns quickly.

Supplier Management and Outreach

Every successful sourcing event ends with an award to a supplier or set of suppliers. Thus, it is important to be sure that every supplier is aware of and comfortable with every step of the process. There should be different strategies for current (incumbent) suppliers and newly identified suppliers. Each supplier type will have different questions about and require a different amount of interaction through the process. Make every effort to answer every question and address every concern as quickly as possible. Make sure any new information, including answers to questions, is communicated to all suppliers as soon as it is available. In sourcing, suppliers are the key to success, so be sure to treat them with the respect and consideration they deserve.

Case Study: A Rudderless Boat

Profile: A global, multi-billion European pharmaceutical company determines the need for a large scale IT services procurement. An RFP is issued to gather information and pricing from a global pool of potential vendors. It is estimated this problem is costing the company millions per year in loss.

Problem: A sourcing team and committee are assembled and the first version of the RFx process is created. The document sent to suppliers is over 150 pages long with highly detailed questions regarding all aspects of the technology deliverable. Vendors can quickly deduce that the line of questions show a clear comprehension of problems from the buying team with no perceivable direction for the project or understanding of the solutions being requested. Essentially, the buyer is requesting the supplier to spend significant time and energy to respond to questions that have little chance to result in any business.

Result: Most qualified suppliers are able to quickly surmise that the buying team has gone into this project without doing proper research and can conclude one or multiple of the following:

There is no budget for this project

The questions are so onerous and detailed that a supplier (or incumbent) has already been chosen and the data is being collected to make it “official”

The buyer is going through a price discovery exercise to create leverage against an incumbent

This will never be awarded due to the lack of understanding on the front end

The questions are so wildly variable that the supplier can forecast a potentially unprofitable/undesirable client

Once the RFP has been issued, most suppliers decline the invitation to bid. This results in a critical loss of supply base, reducing the available solution pool to unacceptable levels. Of the bids submitted, none are comparable side-by-side, making all of them useless in current form.

Eight months after issuing the request, the buying team formally announces to the entire supply base that the project has been permanently canceled. Internally, the waste of time and resources of the buying team creates such poor results that it may take years for the initiative to regain effective standing again.

Solution: The buying team should have taken a milestone based approach where an initial survey was issued to gather basic information and build knowledge internally about the marketplace and possible solutions or alternatives to traditional thinking. Once a deeper understanding was built, a subsequent RFx would be generated to follow up unresolved issues and deal with a more qualified group of suppliers. At this stage, the internal buy-in would be approved and communicated to the supply base to convey confidence and keep suppliers motivated in the process. As the bid methodically moves from stage to stage, each supplier that continues the process knows that they are competing equally and the investment being made will have a positive return on investment. Ultimately, every bid is measured by the end result and is affected by the number of companies that desire the business while remaining capable to perform it.